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OVERVIEWWe're at least temporarily putting the portfolio's cash into the S&P
500 -- simple and Foolish

If we had stashed the portfolio's current cash into
the S&P 500 until needed, the Fool Portfolio would have handily beaten
the market in 1997. It would have been that easy. As it was, while our stocks
were working hard -- our cash wasn't, and it was difficult to keep pace with
the S&P having about 20% of the portfolio sitting on the sidelines.

Going into 1998 the portfolio has $24,500 in cash (not including the money
needed to cover the Trump short at some point), and though we're actively
working to decide on new positions, at least one of those new positions is
going to be a short (so the $24,500 cash wouldn't be needed for that anyway).
Long story short: We don't know how long it will be before all of our cash
can be invested confidently in what we think will be market-beating stocks,
but being long-term investors in the stock market, we don't want the money
sitting out of the market any longer.

We don't try to make market calls; we know that stocks historically have
returned nearly 11% annually. So if our money isn't in companies that we
think can beat that return, for the time being we want it to be in the market
as a whole through the S&P. As we find companies that we think can beat
the S&P, we'll take some money from our S&P Depositary Receipts to
buy the gilded shares.

This approach allows us the time to find great investments while not having
to worry about losing to the market merely because we have too much cash
out of the market. So now and in the future, as we don't make market calls
and don't think that anyone has the proprietary knowledge to be able to do
so, significant amounts of cash on hand will most likely be invested in the
S&P. There are a few things that make this easy: One is discount brokers.
Our commission to trade is so low that we're able to move the money in the
S&P receipts in this fashion without significant expenses. Another thing
that makes this easy is the depository receipts that we're buying. What exactly
are these receipts affectionately named "Spiders"?(Ok, "affectionately" may
not be the right word to go with "Spiders.") Let's take a look.

DESCRIBING THE SPIDEREffectively these shares do the same thing as the Vanguard S&P 500
Index Fund, but are more easily traded

The Boring
Portfolio bought shares of Spiders last year, and Greg Markus (TMF Boring)
did such a good job
describing
the things that we're going to steal most of his work right here. Greg
writes:

"Standard & Poor's Depositary Receipts, or "Spiders," were created by
the American Stock Exchange in January 1993 as a convenient way for investors
to buy and sell the aggregate stock of the companies represented in the S&P
500. The SPDR Trustee is the State Street Bank and Trust Company.

"Spiders represent a unit of ownership in the SPDR Trust, a long-term
unit-investment trust that was established to accumulate and hold a portfolio
of common stocks intended to track the price performance and dividend yield
of the S&P 500 Composite Stock Price Index. Spiders are not an option
or a future; their underlying value derives from ownership of stock, just
like a mutual fund. SPDRs normally trade at a value approximately equal to
1/10th of the value of the underlying S&P 500 Index.

"SPDRs trade like stock and provide quarterly cash dividend distributions
based on the accumulated dividends paid by the stocks held in the SPDR Trust,
minus nominal Trust expenses. Essentially, Spiders are an alternative to
an S&P Index Fund, such as the one offered by Vanguard.

"Advantages of Spiders over an Index Fund are convenience and liquidity:
You can buy or sell Spiders just like a stock, any time of day, at an established
price, in any amount -- even on margin if your account qualifies. (SPDRs
also provide a convenient way to sell the S&P Index short, should one
be so inclined.)

"SPDRs can also offer certain tax advantages as compared with an Index Fund
because they give you control over distributions of capital gains. If you
purchase Spiders through a deep discount broker, their total return is
essentially indistinguishable from that of the Vanguard Index 500 Fund, an
itsy-bitsy difference at most.

"Although relatively few folks know about SPDRs, some investment funds use
them regularly, as do a growing number of individual investors. It's not
unusual for them or their sibling, the MidCap SPDRs (AMEX: MDY) based on
the S&P MidCap 400 Index, to be among the most active issues on the AMEX
on any given day."

And finally, we agree with the Bore, who wrote: "I don't promise to keep
this investment in SPDRs forever, however. If a compelling single stock purchase
comes along someday and I need to raise cash, the Spiders may get exterminated
-- or resettled humanely in someone else's account, I should say. On the
other hand, spiders help keep the bugs in one's portfolio under control,
so I'm happy to have the arachnid amigos around."

POSSIBLE PITFALLSThere are always a few

We suggest that you should never invest in stock unless
you're investing for at least three to five years. The buying of these shares
and then the very likelihood of selling at least a portion of them in the
near future might seem to contradict the Foolish long-term approach. We see
it this way:

We always want to be in the stock market. No other investment vehicle has
done better than the stock market this century. The largest disadvantage
of stocks, perhaps, is that no one can predict exactly what they'll do next.
The way to conquer that disadvantage, though, is to always own them. Right
now, we don't own stocks with a good percentage of our portfolio, and since
April 17 of 1997 our cash has sat out while the S&P has gained 23%. By
buying the S&P, we're guaranteeing that we'll always be in stocks, because
we won't sell our S&P shares until we find something that we think is
better. With this purchase we're also reiterating (though not intentionally)
our belief that no one can predict the market.

So what happens if we buy the S&P 500 receipts, they go down 7%, and
in the meantime we find something that we like better and sell $11,000 worth
of S&P shares to make the purchase? Wouldn't we have been better off
having the money sitting in cash before the purchase? Numerically, yes, of
course. But we couldn't have foreseen that. We could also sit out of the
market with the money and watch the S&P quickly rise 10% early this year.

Also, there is this to consider: If the S&P does decline, likely at the
same time any individual stock that we were aiming to buy as a replacement
for our S&P shares would be declining as well. So, though our S&P
shares would be falling, we'd hopefully be replacing the sold S&P shares
with a new stock bought at a lower price due to this. This is one aspect
of being invested at all times: you're at the whim of market, and most boats
rise and fall with the market's tide. We'd much rather have that, though,
and be relaxed and think long-term than try to guess the market and jump
in and out. So, we'll invest in the S&P knowing that we may sell some
shares when they're down in order to buy another stock. We'll take the rolling
sea that constitutes the S&P and all of its floating boats (individual
stocks) and jump from boat to boat, rather than try to tread water (hold
cash) and then jump into a single boat only when we've found a special kind.
We'd rather always be boating. We want to be in the market, not in the water.
Ok. End of boat analogy. Thankfully.

THE COMPANIESAnd the price

The S&P 500 holds many of the largest and most
successful companies in its ranks, from Microsoft to Coca-Cola, to Johnson
& Johnson and Intel. It's the best means of tracking the performance
of the majority of leading U.S. corporations, and if you believe that
progress is imbedded in the future, you pretty much believe in the
S&P for the long term.

At about 970 points, the S&P 500 trades at 20 times earnings while sporting
a five-year earnings per share growth rate of 17%. (For all the cries claiming
the market is overvalued that we've heard the past three years, it's really
hard to see why by this measure.) The companies in the index are expected
to collectively earn operating earnings of $48.63 per share in fiscal 1998,
so the S&P trades at about 19.7 times that earnings estimate. That estimate
does call for only 7% growth in 1998 from the $45.43 in earnings per share
expected in 1997. Hopefully the companies can grow more than 7% collectively,
but either way we're not sweating it.

As written of in the Fifth Step of
the 13 Steps to Investing Foolishly and in
The
Motley Fool Investment Guide, a S&P 500 index fund is the best option
for investors not buying individual stocks but wanting to invest in the market.
In fact, the S&P 500 is good enough for a lifetime for many investors,
and it should be. You're buying, after all, the leading companies in the
country. Any investment should always be long term. With this approach, we're
committing to keeping all of our money (or as much as possible) in the market
at all times (moving it directly from the S&P to individual stocks),
perhaps for the rest of our Foolish days.